Avoid these Breaches
When discussing appraisal infractions, there are several frequently occurring minor violations. In this piece, I provide various instances of less severe transgressions concerning development STANDARD 1 and reporting STANDARD 2, along with a few other categories of violations. These examples have been compiled from my extensive personal experience in the field of appraisal regulation and insights gathered from regulatory bodies in different states. By familiarizing yourself with these common violations made by appraisers, you will be better equipped to steer clear of them in your own work.
1. Use of inappropriate sales
One of the biggest challenges faced in a sales comparison approach is the utilization of inappropriate sales data. This issue can significantly impact the accuracy and reliability of any sales comparison analysis. When inappropriate sales are included in the evaluation, it can lead to distorted conclusions and misleading results. To ensure the credibility of the sales comparison approach, it is imperative to carefully examine and filter out any sales transactions that may not accurately represent the market conditions or the property being evaluated. By eliminating the use of inappropriate sales, real estate professionals can enhance the effectiveness and integrity of their sales comparison analysis, providing clients with reliable and trustworthy information for their decision-making process. In conclusion, it is crucial to exercise caution and diligence when conducting a sales comparison approach, by avoiding the use of inappropriate sales and maintaining the highest standards of professionalism and accuracy.
2. Use of unsupported site value
One recurring violation that occurs frequently in appraisal reports is the use of unsupported site value in the cost approach. This particular issue has been consistently highlighted by various boards as a prevalent deficiency or shortcoming in the appraisal process. It is imperative for appraisers to ensure that they have sufficient evidence and justification for the site value they assign in their reports. Failing to provide proper support for the site value can undermine the credibility and reliability of the appraisal, which is a significant concern in the profession. Appraisers must diligently gather and analyze relevant data, considering factors such as location, market conditions, and comparable sales, to accurately determine the site value. By adhering to professional standards and guidelines, appraisers can avoid this violation and produce appraisal reports that are comprehensive and trustworthy.
3. Failure to analyze sales history
Failure to analyze the three-year sales history of the subject property is also common. This is surprising to me because it is so easy for someone else to check if you omit or don’t analyze the sales history. A reviewer or an underwriter can check that from their desk in about three seconds. So if you fail to do it, chances are someone is going to find out about it.
4. Failure to analyze the purchase agreement
Next on my list of common violations, which is a crucial aspect that must not be overlooked, is the failure to thoroughly analyze and meticulously scrutinize the details of the current pending purchase agreement pertaining to the subject property. This grave oversight is often accompanied by an equally grave failure to properly evaluate and assess the three-year prior sales history, a critical component that provides valuable insights into the property’s past performance. It is imperative for professionals in the field to recognize the significance of delving deep into the purchase agreement, as it can reveal potential pitfalls, hidden clauses, or any other detrimental aspects that may impact the overall transaction. Hence, a comprehensive analysis of the purchase agreement is an essential step towards ensuring a smooth and successful real estate transaction.
5. Failure to include number and title with signature
Failure to include your certification number or license number and title with your signature is not a USPAP violation, as you well know. But it would be a violation of state law or regulation, depending on who set forth the requirement that you have to include your certification or license number and title with your signature.
6. Failure to disclose appraisal assistance
Failure to disclose significant real property appraisal assistance is another common violation. This is one of those violations that can be a violation of USPAP and a violation of state law or regulation.
States often see this when a trainee or assistant applies to become a licensed or certified appraiser, and they submit their appraisal log to be reviewed by the state agency. The state agency will pick out random entries from the log and require the applicant to send in copies of those appraisal reports so they can be looked at. Believe it or not, sometimes trainees/applicants will send in the appraisal reports, and the trainee is not mentioned in the reports as having providing significant real property appraisal assistance.
This is a really unfortunate circumstance because in many cases: 1) The trainee doesn’t get experience credit for those assignments when he or she was not properly acknowledged; 2) It often results in a disciplinary case being opened up against the supervisor for failure to disclose real property appraisal assistance.
7. Mischaracterization of the subject property
Another (unfortunately) common violation is mischaracterization or misrepresentation of the subject property. My CE course contains a few examples where a mixed-use property or a commercial property is appraised as a residential property in order to obtain a residential mortgage; this can sometimes be considered the improper use and/or disclosure of a hypothetical condition.
8. Appraisal report does not meet USPAP requirements
Finally, the last common violation is when the appraisal report content does not meet USPAP requirements. Standards Rule 2-2 (a) sets forth the content requirements for an Appraisal Report. Standards Rule 2-2 (b) sets forth the requirements for a Restricted Appraisal Report. These requirements are minimums, but sometimes appraisers do not meet these minimum requirements, and that becomes a USPAP violation.
Not all of the items on this list are USPAP violations, but they are violations nonetheless. For further discussion of all types and degrees of appraisal violations, including more severe breaches of the ETHICS RULE and COMPETENCY RULE, don’t miss my course: That’s a Violation.
“Most people think buying is investing, but they’re wrong [it] doesn’t make you an investor any more than buying groceries makes you a chef.” -Gary Keller
