Sunday, October 30, 2011

REALTOR®, Appraiser, or Both?

If I was paid a nickel for every time someone asks if they "can be frank with me", I would have a better computer. If a nickel was paid every time someone tells me, "you're not a REALTOR®, you're an appraiser", my house would be paid off.

Clearly, there is some confusion about the term "REALTOR®" and what it means. The common misconception is to equate the term REALTOR® with home seller, agent, or broker. The fact of the matter is the term REALTOR® is a registered collective membership mark that identifies a real estate professional who is a member of the NATIONAL ASSOCIATION of REALTORS® and subscribes to its strict Code of Ethics.

Membership in the NATIONAL ASSOCIATION of  REALTORS® is available to individuals engaged in the "real estate business." "Real estate business" as defined in the bylaws of the NATIONAL ASSOCIATION of REALTORS® includes real estate brokerage, management, appraising, land development or building. An Official Interpretation of the bylaws of the NATIONAL ASSOCIATION of REALTORS® states:

"It is not an inequitable limitation on membership for a Board of REALTORS® to require that applicants for REALTOR® Membership who are principals in a real estate firm must maintain a real estate broker's or salesperson's license or must be licensed or certified by an appropriate state regulatory agency to engage in the appraisal of real property."

To be clear, the term REALTOR® may include individuals involved in real estate brokerage, but does not eliminate individuals involved in other specialties included in the definition of "real estate business."

As an appraiser, and member of the NATIONAL ASSOCIATION of REALTORS®, all the benefits of membership are available, including some of particular interest to my Appraisal specialty. These include:
  • The NAR Appraisal Designation Program and Fast Track Program to Designation
  • NAR involvement and participation in The Appraisal Foundation
    • Representation on The Appraisal Foundation Board of Trustees (sponsor)
    • Representation on The Appraisal Foundation Advisory Council (TAFAC)
  • The NAR Library and Information Central
  • Access to the Multiple Listing Service
  • Networking opportunities with other real estate professionals
    • Increased business (over half my assignments are referred to me by real estate brokers)
    • Using brokerage contacts as source for market information, transaction specifics and confirmation
  • Legislative and advocacy efforts
There are many reasons I belong to the NATIONAL ASSOCIATION of REALTORS®. Being confused with the good folks involved in real estate brokerage is not one of them.

Friday, October 21, 2011

Mayhem - Protect Yourself - UPDATED

NOTE: LiveValuation Magazine went south, and the links below no longer lead to the article. Use this link, or read the full article after the jump below.

In addition to being entertaining, the "Mayhem" series of commercials offer a message important to any of us in business; protect yourself. My recent article in LiveValuation Magazine, "Maintaining Your Workfile" was intended to convey the idea an appraiser's best protection from Mayhem is their workfile.

The article was prompted by examination of hundreds of workfiles from appraisers of all stripes from every corner of the State of Florida. Workfiles were provided with nearly every case considered by the Florida Real Estate Appraisal Board during my eight years of service. After completing my two terms as a member of the Florida Real Estate Appraisal Board, another hundred or so workfiles have been examined as part of my continuing responsibility as a member of the FREAB Probable Cause Panel, and as an expert engaged by the Department of Business and Professional Regulation and lawyers representing appraisers.

Unfortunately, many, if not most of the workfiles maintained by appraisers fall short of the bare minimum requirements outlined in the Record Keeping Section of the Ethics Rule of Uniform Standards of Professional Appraisal Practice. Even if  USPAP did not require the appraiser to keep a record of their work, data, information, and documentation to support their opinions and conclusions, it appears many appraisers fail to grasp the concept that maintenance of the workfile is for THEIR benefit and will protect them from MAYHEM.

The real prompt for the article was an appraisal review assignment accepted from an attorney representing an appraiser who was the subject of an Administrative Complaint filed against him by the Florida Real Estate Appraisal Board. The complainant, made by a well known national lender, included allegations that  the opinion of value was inflated, the selection of comparable sales was poor, comparable sales were not similar to the subject property, some of the comparable sales were from outside the immediate competitive market area, and the appraiser failed to recognize and report declining prices and values.

The appraiser responded to the complaint and cooperated with the investigation. Part of the process was providing the investigator with a copy of his workfile, or what he thought was his workfile. At the time of my engagement, the attorney provided me with a copy of the complaint, the state's investigative report (including the appraiser provided workfile), and correspondence between the parties. My engagement included a review of the subject appraisal. In the process of developing my Scope of Work for the assignment, it became clear an interview of the subject appraiser was necessary, along with an examination of his actual, original workfile.

Expanding the Scope of Work to include the interview and examination of original documents was clearly the right decision. When the subject appraiser put the workfile in my hands, it was clear relevant information had not been included in the "workfile" he submitted to the state investigator. The file folder holding the loose pages was filled with notes, all related to the assignment. Within the folder were handwritten memos of conversations with the loan originator. Among these was a request that additional comparable sales be included in the appraisal report to support the appraiser's opinion of value.

My interview with the appraiser revealed that as of the effective date of the appraisal, the lender had strict guidelines for the selection of comparable sales. Highest in the lender's priority was proximity to the subject property and date of sale. Of secondary importance to the lender was similarity to the subject in physical features and size. Unfortunately, there was no reference to the lender guidelines or instructions in the appraisal report or the workfile.

To make a long story short, by reconstructing the subject appraiser's actions and thought process in developing the appraisal and writing the report, it was clear the selection of comparable sales was limited by the lender's own guidelines and instructions. As a result the most recent and proximate sales were included in the report, rather than more similar sales that happened to be distant (the subject property is a waterfront residence in a barrier island community).

Although the original appraisal report was not pretty, a review revealed the opinion of value was credible and not overstated, and the market as of the effective date was stable, rather than declining. It's too bad the appraiser failed to recognize the importance of the ALL of the information in his file, and neglected to provide the state investigator with the lender guidelines he attempted to follow. This complaint hung over his head for about 3 years and cost thousands to defend.

Proper creation and maintenance of his workfile could protect him from MAYHEM!