Tag Archives: Appraisal Standards Board

MY COMMENTS TO THE ASB ABOUT THEIR EVALUATIONS CONCEPT PAPER

October 9, 2019 – Since comments sent to the ASB are made public, I will share my comments here.  Below is what I sent.  I hope everyone will send comments by the October 11th deadline.  The Concept Paper can be found at:

https://appraisalfoundation.sharefile.com/share/view/s6db453b85544d3ea

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Thank you for the opportunity to respond to The Appraisal Foundation’s request for input on its “Concept Paper – Evaluation Standards for USPAP” dated September 3, 2019. I offer my perspective as a client, preparer of, and reviewer of Evaluations on a nationwide basis since 1992.  I have ordered and reviewed thousands of commercial and residential evaluations prepared by both licensed/certified appraisers and non-appraisers.  My comments are based on 27+ years of real-world experience with IAEG-compliant Evaluations and USPAP-compliant Restricted Appraisal Reports.
GENERAL COMMENTS
Before I respond to the questions asked on Page 5 of the Concept Paper, I want to comment on some statements on Pages 1 through 4 that I believe do not reflect the real-world.
On Page 1 are the statements “One change is the increase in the market’s demand for evaluations.” and “Beginning in 2010 the use of evaluations began to noticeably increase.”  These statements are not consistent with my nationwide experience since 1992, nor with exemptions to FIRREA since 1994.  My research along with some Chief Appraisers at various banks shows that there has always been the need for about 4 to 6 times as many Evaluations as Appraisals.  The need for Evaluations did not suddenly increase after 2010, nor at any period since the major changes to FIRREA that occurred in 1994.  Mathematically the percentage of loans needing Appraisals versus the percentage of loans needing Evaluations increased in favor of Appraisals (i.e. fewer Evaluations were needed) from 1994 to 2018/2019.  The simple reason is that the thresholds set in 1994 did not increase while real estate prices about doubled in that 25-year period.  The threshold exemptions in 2018/2019 either caught the dollar amounts up with price appreciation (e.g. the commercial increase from $250,000 to $500,000) or did not quite keep up with price appreciation (e.g. the residential increase to $400,000).  In fact, the most significant threshold for Evaluations has not increased since 1994 – i.e. the $1,000,000 Business Loan exemption.  Therefore, in relation to the need for Appraisals, the need for Evaluations declined between 1994 and 2019.  Also, this relationship will increase in favor of Appraisals every year that real estate prices appreciate and the thresholds are not increased.  Any decline in property values like occurred in 2006-2010 leads to appraisals being required almost 100% of the time.  Therefore, the trend for Evaluations will continue to be downward in relationship to the need for Appraisals.
As to the ‘controversy and confusion’ mentioned on Page 2, this can be directly attributable to The Appraisal Foundation.  The financial industry is not confused and never has been!  Since the first detailed discussion of Evaluations came out in 1992, banks and credit unions have known exactly when they can order Appraisals and when they can order Evaluations.  The thresholds are black and white.  Also, the content difference between the two products has been clear and known by all since 1992 and especially since 1994 when the Interagency Appraisal and Evaluation Guidelines (IAEG) detailed Evaluation requirements.  Any confusion on the part of appraisers occurred when the ASB started answering the question of whether appraisers could perform Evaluations with a ‘Yes.’  The answer has been ‘No’ in general with 10 States currently permitting licensed/certified appraisers to perform non-USPAP Evaluations.  Saying that appraisers can do Evaluations by preparing at least Restricted Appraisal Reports was always the wrong answer to promote and has resulted in any confusion on the part of appraisers.  But, financial institutions have never been confused about Evaluations.  Once again, The Appraisal Foundation has the opportunity to simply say that Evaluations as defined by the IAEG are outside the realm of TAF and are not Appraisals and thus users and Evaluators need to refer to the most recent IAEG.  That simple.  It has been that simple for almost 30 years now.  Appraisals and Evaluations have some things in common, but they have many differences, too.  They are simply two different products.
These statements that start on Page 3 are somewhat to entirely misleading:
“To complicate matters further, the Guidelines are written to provide guidance to federally regulated financial institutions and examiners – they are not written for appraisers or others completing evaluations. It is also important to note that recent rulings have determined that federal guidance, such as the Guidelines, is merely guidance and is therefore not enforceable. This underscores the fact that there are no true standards for the performance of evaluations. Furthermore, when evaluations are performed by individuals who are not credentialed (or are exempted from oversight by state laws), there is no publicly accountable entity to turn to if the evaluation is not completed competently, and if the results are called into question by the institution or by an institution’s customers.”
Saying that the IAEGs (which explain FIRREA) do not apply to appraisers is not logical.  That is like saying FIRREA itself is for financial institutions to follow, but not appraisers.  That is obviously 100% wrong.  FIRREA and the IAEGs are meant for financial institutions, appraisers, and evaluators.  All parties need to abide by both the law and the bulletins.  Yes, in a court of law, the IAEGs can be compared to the Advisory Opinions, Statements, and FAQs contained in the USPAP books.  However, in the real world when appraisers are required to do what their peers would do and what their clients expect to see, we know that clients and appraisers do what is said in the Advisory Opinions, Statements, and FAQs.  It is the same for IAEGs – all parties do exactly what they say.  Also, Evaluations have ONE set of guidelines.  Appraisals have numerous – IVS, SVP, UASFLA, USPAP, and others.  All clients and evaluators know they can go to a single document to know exactly what to do – i.e. the most recent IAEG.
COMMENTS ON SPECIFIC QUESTIONS
Q:  Should the ASB investigate whether it would help foster public trust in valuations if they set minimum standards for evaluations? None of the USPAP Rules or development and reporting standards currently exist for non-appraisers who perform evaluations, because the Guidelines provide only broad guidance. Would it be beneficial to give everyone performing an evaluation a clear set of standards to follow including, for example, rules related to ethics and competency?
COMMENT:  No, ASB’s involvement will only result in confusion.  It is misleading to say that the Guidelines ‘provide only broad guidance.’  The Guidelines provide specifics as to the development and reporting of Evaluation Reports.  Also, unlike USPAP which is not required in about a dozen states (!), Evaluation Guidelines apply nationwide.  Unlike Appraisals that have numerous sets of standards, Evaluations have one set of guidelines.  Also, Evaluation requirements apply to BOTH licensed/certified Appraisers and non-Appraisers!  Appraisal requirements only apply to licensed/certified Appraisers.

Q: What specific Rules or Standards Rules (in STANDARDS 1 and 2) would need to be modified or eliminated if the ASB were to develop specific standards for evaluations?
COMMENT:  I have nothing to say here as I recommend the ASB just keep to the ‘A’ that is in ASB and USPAP – Appraisals.  Evaluations are not Appraisals and should not be discussed at all (including the Advisory Opinions, Statements, and FAQs!) in the USPAP book.  Some  people believe the ASB should briefly address Evaluations in Standards 1 and/or 2 by simply referring to the IAEG for Evaluations guidelines.  This is unnecessary as all has been fine for 30 years and nothing is needed from USPAP in regard to Evaluations.  Also, this would lead to confusion since USPAP is not required by all States.

Q: If the ASB develops standards for evaluations, how would that impact Advisory Opinion 13, Performing Evaluations of Real Property Collateral to Conform with USPAP? If the ASB does not develop standards for evaluations, should the guidance in AO-13 be modified?
COMMENT:  Per above, ALL discussion of Evaluations needs to be removed from the ENTIRE USPAP book.  One straightforward FAQ answering whether appraisers can do Evaluations should simply say this is a topic outside of TAF and USPAP and the reader should refer to the IAEGs.

Q: Are USPAP Rules and Standards still the minimums required to protect public trust in the appraisal profession? If not, then are there any Rules or Standards Rules that should be considered for significant revision or elimination? Or, is USPAP a “safety code” that is best left in place despite pressure to reduce the requirements?
COMMENT: USPAP is fine for Appraisals.  The ASB addresses changing conditions in their bi-annual updates.  I see nothing that needs to be changed here – other than maybe only making changes every 5 years or such.  The major critique I hear from appraisers and clients is about USPAP changing every 2 years.  Questions are asked like are they admitting they got it wrong all along?

Q: Should the ASB modify the DEFINITION of appraisal to differentiate it from an evaluation? If evaluations were included as a separate category in USPAP, what would be the regulatory implications?
COMMENT: Probably no need to have a definition for Evaluation in an Appraisal document.  Again, they are just apples and oranges.

Q: How might the ASB help resolve the nomenclature issue so appraisers can prepare evaluation reports that comply with USPAP without the use of contradictory or confusing labels?
COMMENT: Again, appraisers in states that require them to follow USPAP cannot do Evaluations.  It is that simple.  The appraisers in those 40 States plus DC and the 5 Territories know they must meet USPAP for ALL assignments and thus perform an Appraisal.  This is known by all.  No confusion.  Telling appraisers in those areas they can do Evaluations is what causes confusion.  That needs to stop and the confusion will go away.
Q: How might USPAP reporting standards be changed and/or how might the ASB more effectively communicate the flexibility of USPAP to appraisers, regulators, clients, and policy makers?


o Veteran appraisers understand the SCOPE OF WORK RULE and think that USPAP reporting requirements provide all the flexibility that is needed for appraisers to write evaluations or offer other services. Indeed, one of the first lines of STANDARD 2: Real Property Appraisal, Reporting states: “STANDARD 2 does not dictate the form, format, or style of real property appraisal reports.”
o But not all understand or agree. For example, the Guidelines state: “Unlike an appraisal report that must be written in conformity with the requirements of USPAP, there is no standard format for documenting the information and analysis performed to reach a market value conclusion in an evaluation.” In March 2016, the Director of the Division of Banking Supervision and Regulation reiterated that there is no “standard format” for an evaluation “in contrast with the requirements of USPAP.”
COMMENT:  To clarify, and I believe TAF would agree, there is no “standard format” for appraisals either.  The ASB purposely keeps reporting format, valuation techniques, and some other items out of USPAP.  Like appraisal reports, evaluation reports must be written in conformity with the requirements of the IAEG.  Appraisal reports must meet the IAEG, which then requires compliance with USPAP, too.  Evaluations have the same requirements, except for the USPAP item.
Thanks for the time and consideration of the above.
Sincerely,
The Mann
George R. Mann, CRE, FRICS, MAI

ASB RELEASES CONCEPT PAPER ON EVALUATIONS

September 3, 2019 – As promised a month ago, The ASB has issued their concept paper with ample time for everyone to comment.  Also, there will be a webinar on September 10th and a public meeting on October 18th.

The concept paper can be found at:

https://www.appraisalfoundation.org/imis/TAF/Standards/Exposure_Discussion_Drafts/TAF/Exposure_Drafts.aspx?hkey=d6d47266-eca5-4178-8919-2d3e827a5f36&WebsiteKey=e12b6085-ff54-45c1-853e-b838ca4b9895

If this URL is too long, go to the Standards & Qualifications tab on TAF website.

After reading the document, I believe it is well explained and gives everyone a chance to opine.  I think a statement or two are slightly misleading, but they explain why they say what they say and that is just fine.  If I am up for it one day, I might add a post here listing out the items I disagree with.

My stance will never change.  Evaluations need to stay outside of TAF.  Just leave this product under the domain of federal regulators who actually do have the power to go after anyone who performs fraudulent evaluations.  The federal regulators have enforcement power that TAF and ASB do not have.

Please take the time to send them your comments.  They do read everything they receive.  Obviously, some meat to your stance will carry more weight.  Try to give some factual information.  Simply saying evaluations are more risky is factually wrong.  People like myself that have ordered and reviewed appraisals and evaluations on all property types, performed due diligence on dozens of good and bad banks, et al, know loans allowing evaluations are, and likely always will be, less risky than loans requiring appraisals.

Unlike our politics, it will help if you don’t say you are a Never-Evaluations person and leave it at that.  No need to call each other Appraisalphobic or Evaluationphobic lol

Give the ASB some real substance and they will give your comments significant weight.  Give them suggested wording and they will consider it.

Just saying ‘because’ is what a 5-year old says:)

Take advantage of your chance to comment…

The Mann

 

HEY ASB, STAY THE EXPLETIVE DELETED OUT OF THE EVALUATIONS WORLD!!!

August 1, 2019 – I was bombarded throughout the day with appraisers emailing me the ASB announcement that they are going to consider drafting standards for Evaluations.  Their announcement is full of blatant lies.  It is typical of what the Fake News Media puts out.  Therefore, I will list their lies and provide the actual truth below.  Too many people who have no to minimal experience with evaluations put out Fake News all of the time.  It is criminal.  I have ordered and performed evaluations since essentially the beginning of their existence in 1992.  The truth follows….

LIE #1 – “Currently, there are no uniform standards for appraisers to follow when conducting an evaluation, ” – THE TRUTH – Since October 1994, there have been uniform standards for appraisers to follow when conducting an evaluation.  These standards were updated in the December 2010 Interagency Appraisal and Evaluation Guidelines.  And get this, these requirements apply to not only appraisers, but NON-appraisers!!!  USPAP only applies to appraisers.

LIES #2 and #3 – “, which leads to greater risk to the safety and soundness of the real estate transaction and diminished protection for consumers….With the increased use of evaluations in the marketplace lenders and consumers are being exposed to an unnecessary level of risk not seen since the 1980s when national appraiser qualifications and appraisal standards had not yet been created….” – THE TRUTH FOR #2 – First, evaluations are only allowed in transactions that are lower risk than appraisals.  Therefore, they cannot possibly add risk to lending.  In my 27+ years of working for banks, I cannot recall a bad loan that originated with the use of an evaluation.  But, all the bad real estate loans I have seen did contain an appraisal.  Inflated appraised values alone do not make loans go bad.  That is not what I am insinuating.  But, I will confidently say that no bank has ever or will ever go under because of the use of evaluations.  However, many banks have gone and will go under with appraisals being a contributing factor.  THE TRUTH FOR #3 – ‘…diminished protection for consumers.’  Everyone loves to claim they are trying to help the consumer.  I guess we can call it using the ‘Consumer Card.’  The ‘consumer’ usually means the general public that buys houses.  The fact is FIRREA does not apply to 90%+ of residential loans.  Everything that Fannie Mae, Freddie Mac, the VA, HUD, and on and on are involved in is exempted from FIRREA.  (If you are honestly concerned about the consumer, it is Fannie Mae and Freddie Mac that must be stopped from loosening appraisals standards…and remember evaluations are not in their world, so don’t get the issues confused.)  The consumer BENEFITS from evaluations as they are cheaper and faster than appraisals.  It is a flat out, despicable lie to say that the ‘consumer’ is hurt by the use of evaluations.  Actual proof has been the real world since 1992.  Evaluation volume is estimated to be 4x-6x that of appraisals.  Has anyone ever said an evaluation caused a loan to go bad or a bank to go under?  NO!

LIE #4 – “This important development by the ASB shows how the Board has their ear to the ground, listening to the concerns of working appraisers in a rapidly evolving marketplace where there is an increasing demand for different valuation products,” said David Bunton, president of the Foundation.” – THE TRUTH – Ear to the ground?  What a ridiculous statement!  Evaluations were an option when the original FIRREA was placed into law in 1989.  30 YEARS AGO!!!  The ASB reminds me of the quote attributed to Mark Twain about one of my favorite cities, Cincinnati – “When the end of the world comes, I want to be in Cincinnati because it’s always twenty years behind the times.”  When it comes to evaluations, I want to be the ASB because they are 30 years behind the times:)  The demand for evaluations has existed mainly since 1992.  (Any of you remember BC-225:) )  Nothing has changed.  Except if The Appraisal Foundation will say the truth they are scared to death of a non-appraisal product.  They want to control their fiefdom.  Hey ASB, the first step is admitting what you are!

LIE #5 – “Currently, the Interagency Appraisal and Evaluation Guidelines for federally regulated financial institutions provide guidance on evaluations, but that guidance is directed at lenders, not appraisers.” – THE TRUTH – OMG, the misleading statements get more ridiculous.  This is like saying the 5 appraisal requirements in FIRREA are directed at lenders, but not appraisers.  Just not true.  Appraisers must provide Market Value ‘As Is’ per FIRREA, not USPAP.  That applies to both appraisals and evaluations, BTW.  Appraisals must be written per FIRREA, not per USPAP.  The IAEG requires the subject property be inspected for evaluations.  USPAP doesn’t even require an inspection for appraisals!  As a reminder, the IAEG requirements apply to BOTH appraisers and non-appraisers for evaluations.  Just imagine if USPAP applied to non-appraisers!  That idea is as ridiculous as the ASB trying to provide standards for evaluations.

LIE #6 – “Under federal regulations, evaluations may be performed by non-appraisers who have not demonstrated a level of expertise through education, training, and examination.” – THE TRUTH – Do you ever wonder why people tell a lie that can easily be proven wrong?  Here is what the IAEG says about who can complete an evaluation – “An institution should maintain documentation to demonstrate that the appraiser or person performing an evaluation is competent, independent, and has the relevant experience and knowledge for the market, location, and type of real property being valued. Further, the person who selects or oversees the selection of appraisers or persons providing evaluation services should be independent from the loan production area.”  The requirements are the exact same for appraisals and evaluations.  Shouldn’t the ASB be made to retract their lie?  Shouldn’t they have to issue a new announcement with truths, instead of lies?  How does a group of people look themselves in the mirror each morning knowing they published numerous lies to the public they love to claim they protect?  I have never understood how people live like that.

LIE #7 – “If appraisers are not completing an evaluation, there is no recourse for a lender or consumer to appeal a bad evaluation.” – THE TRUTH – Why not?  I have asked for evaluations to be revised.  I have rejected evaluations.  I have done both for appraisals, also.  There is no difference in how these products are treated in this regard.  Whoever did the evaluation can be sued as easily as one of us appraisers that did an appraisal.  And it is likely an evaluation doesn’t contain that funny limiting condition that many appraisers put in appraisals about their liability being limited to the appraisal fee:)  That one has always cracked me up.  I am sure lawyers have been stopped in their tracks when they see that clause, not!

Those are what I would label as bald-faced lies.  (I learn something every day….there are bald-faced and bold-faced lies and they are different….interesting.)  Below are just statements that are hyperbole or unsupported or such.

“Appraisers are valuation experts. When hiring a licensed or certified real property appraiser to develop and report market value, the client should expect the work to be performed in accordance with USPAP,” said Wayne Miller, chair of the Appraisal Standards Board” – COMMENT – No, they should not.  USPAP is not a law, as we all know.  USPAP has never been the only set of standards for valuation.  Many states do not require USPAP for all appraisals.  (Read my blog post of a few years ago where I contend that all ‘Mandatory’ laws are in violation of Federal Law.  I believe this issue was settled by a Federal Court ruling in 2004 in Pennsylvania.)   Many large clients do not either.  The Yellow Book (UASFLA as the word police are now wanting it to be referred to) is its own set of valuation standards.   USPAP says the following:

“USPAP does not establish who or which assignments must comply. Neither The Appraisal Foundation nor its Appraisal Standards Board is a government entity with the power to make, judge, or enforce law. An appraiser must comply with USPAP when either the service or the appraiser is required by law, regulation, or agreement with the client or intended user. Individuals may also choose to comply with USPAP any time that individual is performing the service as an appraiser.”

It is NOT needed for all assignments.  Appraisers do NOT need to comply if it is not necessary.  Clients do NOT need USPAP appraisals all of the time.

“The Board is eager to receive stakeholder feedback from the planned concept paper and public hearing on the impediments, if any, to appraisers completing evaluations in accordance with USPAP.” – COMMENT – This one is simple.  The lone impediment are the state laws that require licensed appraisers to meet USPAP for ALL appraisals, including those for financial institutions.  As I note above, I believe these laws are unconstitutional and have ignored them my whole career.  Federal law trumps state law.  My grass roots campaign since 1994 to get the Tennessee Law, as I refer to it, passed in all other states has gained traction in the past few years.  Numerous states now allow us licensed appraisers to perform non-USPAP Evaluations.  That is the solution.  Change the state laws, one by one.  And keep the ASB the heck out of the Evaluation world!  The banking agencies already set the standards for evaluations and they can enforce them.  Probably much better than the states have enforced USPAP!  People who violate FIRREA are subject to civil money penalties and jail time.  That applies not only to lenders or credit people or anyone else in a bank or credit union, but also to appraisers and evaluators!

In closing, let me point out the obvious….remember what the ‘A’ stands for in USPAP, TAF, ASB, et al.  Evaluations are NOT appraisals.  Appraisals are NOT evaluations.  They may coincidentally have some similarities, but they also have significant differences.  They each have more than adequate standards.

Some facts that I have had to share over and over for 25+ years….Evaluations have been around as long as appraisals in regard to FIRREA.  They are not something new.  They have not negatively affected the appraisal industry.  The volume of appraisal work has increased significantly over the past 25-30 years – evaluations have been done all along.  Mostly by non-appraisers.  Passing state laws like TN and GA and FL and LA and VA and others now have is all that is needed to open this world to appraisers.  Those who do not want to do them, don’t do them.  Your business decision.  But, don’t stop your peers from making a living that includes doing them.  That is selfish.

I am 100% positive that evaluations have not negatively affected the banking industry or our economy over the past 30 years.  They will not over the next 30 years.  If you understand the transactions they can be used on, you understand that almost always, if not always, evaluations are involved in lower risk loans than appraisals.  If you are concerned about the banking industry, the economy, the consumer, then figure out how to provide appraisals that are more accurate than the plus or minus 20% minimum range of accuracy that numerous studies have proven them to be!  How do you convince the public that a professional doing a valuation is adding something of value (no pun intended…or is it) when their appraisal on a $1,000,000 property is not more accurate than $800,000 to $1,200,000?  Do you not think that most of the public knows to a smaller range than that what their property is worth?

I am sworn to secrecy about a similar professional study on the accuracy of evaluations that showed the range to be plus or minus 5%.  Now, tell the world that there is more risk when using evaluations than appraisals.  See how that flies with people that know that plus or minus 5% is far superior to plus or minus 20%.

Folks, know what the facts are versus the Fake News about evaluations that is passed around by individuals and organizations with a bias.  I try not to have any bias as I have made my living off of both products in one way or another for 27+ years.  I have spent 25 of those years trying to help the appraisal industry see the light and get their state laws passed so they can access the non-USPAP Evaluation world.  That is what will help appraisers.

What will not help appraisers is the ASB putting out their own standards for evaluations.  Who is going to follow them anyway?  The banking/credit union world already have evaluation standards.  Why would they want to amend Federal Law to require that evaluations follow some new ASB standards?  Hopefully, the ABA, MBA, and others will be sure to squash that idea.  The Federal Agencies that have examined banks all along can factually say that although evaluation programs can be improved overall, they have not added any risk to banks or the economy or consumer.  They know the most.  If there was a concern, it would have been made public already.

What will not help appraisers is appraisers wanting to only provide the Black Model T Ford.  If you think evaluations will lower the quality of appraisals, you have been proven wrong for 30 years.  If you think evaluations will lower appraisal fees, you have been proven wrong for 30 years.  (The continuous decline in appraisal fees is due to many other factors, but I am certain it has nothing to do with evaluations.)  If you think evaluations will add risk to the financial industry, you have been wrong for 30 years.

If you think appraisers like yourself are the best people to provide non-USPAP Evaluations and have been missing out on a ton of revenue for 30 years and that clients would prefer to be using licensed appraiser to do non-USPAP evaluations, YOU ARE RIGHT…..

mic drop

The Mann

(Obviously feel free to share the above…it is out on the web, not like there is any taking it back lol  I will post something new if an error is pointed out or I hear lies about what I said or misinterpretations et al…so check back now and then….and be sure to let the ASB know what you think when they open this up to public comment.)