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.