GUEST AUTHOR: Micheal W. Armentrout, VP AM Appraisals, Inc. Mike has been involved in full time real estate valuation since early 1992 and has experience in numerous Central Ohio markets.
It seems as though a recent trend with some clients (primarily AMC’s) has been a concern over the appraiser’s ability to work in certain markets. After all, if we have never or rarely worked in a specific locale then obviously we are not qualified to work there; right? Well before jumping directly into USPAP we should clear up some things.
The reason why this is a growing trend is most likely due to the level of complaints lenders and AMC’s are receiving about “low” appraisals. Homeowners and realtors have been concluding that appraisals are coming in under the true value because the appraiser was not from the area or did not know the market. In fact, many of my own realtor friends have largely based their stand against HVCC on this argument and I have consistently stated my opposition to this line of logic. There are numerous strong points against HVCC but geographic competency is not one of the stronger ones.
If geographic competence was really a growing issue, realtors and homeowners must realize that it would not only be reflected in under-valued appraisals but inflated ones as well. A lack of competence in any market will always lead to erroneous and unreliable reports. In my opinion, HVCC has not been a good policy but I don’t believe it has caused a rise in the number of appraisers working in unfamiliar territories. Of course some rogue appraisers do occasionally violate the requirement to be knowledgeable in whatever market they are completing appraisals but no significant pressure to do this was brought about by HVCC alone.
Rather than discussing the finer points of this debate, we do have a binding requirement that is literally recorded in black and white. The Competency Rule of USPAP is very clear on this issue.
Prior to accepting an assignment or entering into an agreement to perform any assignment, an appraiser must properly identify the problem to be addressed and have the knowledge and experience to complete the assignment competently; or alternatively, must:
- disclose the lack of knowledge and/or experience to the client before accepting the assignment;
- take all steps necessary or appropriate to complete the assignment competently; and
- describe the lack of knowledge and/or experience and the steps taken to complete the assignment competently in the report.
Notice that it does not define competency by distance or a mile radius as is the growing standard requirement on some AMC requests. Some clients define the distance by the office location and some by where the appraiser lives. Both are faulty in premise and do not adequately qualify or disqualify the appraiser for an assignment. Conversely, just because an appraiser lives or has an office in a specific market does not automatically mean they are qualified to complete appraisals there.
Many appraisal firms have expertise in numerous markets that may or may not be contiguous to their place of business or homes. Some may have qualified appraisers who specifically cover distant regions. For instance, our company has been working in a satellite market that is forty miles from our office and has been doing so for over fifteen years. We have weekly assignments there and are also members of that areas MLS and are well-known by many of the area realtors. Chances are that if an appraiser pays to be a member of an MLS, then they probably do enough work there to justify the ongoing expense. Some commercial appraisers do work for retail chains in different States and in addition to their individual State Certifications; they are bound by the same USPAP Competency Rule.
Even in cases where an appraiser does not have the experience and knowledge, USPAP allows and requires that they become sufficiently knowledgeable to complete an assignment. Obviously the bigger debate would then be what the process is for obtaining that knowledge. The Competency Rule does propose several methods to accomplish this but it does not spell out an absolute protocol.
If the trend of distance requirements continues to increase, it is possible that many affected will simply look for new ways to widen their coverage area. What is to stop appraisers from creating additional branch locations and re-registering those addresses with AMC databases? One-appraiser and home office operations who represent the largest segment of our industry could really feel a pinch if this happens. Until then, it is probably a good idea to have a statistical database of assignments to support your qualifications claims.
Other Posts By Michael Armentrout:
- Properly Define “Declining Markets” - A Call To Mortgage Lenders
- Appraisal Independence at Crossroads, Again!
AUTHOR: Micheal W. Armentrout, VP AM Appraisals, Inc. Mike has been involved in full time real estate valuation since early 1992 and has experience in numerous Central Ohio markets. He served as a staff appraiser at several local firms before forming AM Appraisals, Inc. with business partner J.M. Massey. e-mail: firstname.lastname@example.org web address: http://www.amappraisals.com