"Real Estate Newsletter"
NYS Department of State Volume 1, Number 2 — Fall 2004 Real Estate Appraisal Newsletter Department of State Enforcement Update Note: Article 6-e of the Executive Law requires the Department of State to regulate the conduct of Licensed/Certified Appraisers and Appraiser Assistants and to establish dis- ciplinary proceedings in conjunction with the Board of Real Estate Appraisal. Pending Cases Currently, charges are pending against eight appraisers for various violations of the Uniform Standards of Professional Appraisal Practice (USPAP) and Article 6e, NYS Executive Law: George E. Pataki Two complaints against a Certified Residential Appraiser for conveying mis- Randy A. Daniels Governor leading appraisal reports. This individual was also arrested in Nassau County and Secretary of State charged with five felonies for inflating value estimates in a scheme to defraud lenders. Real Estate Appraisal A Certified Residential Appraiser for rendering appraisal services in a careless and negli- Board Members gent manner. A Licensed Residential Appraiser for failure to properly gather factual information, render- D. Rex Bryce, Chair ing appraisal services in a careless and negligent manner, and failure to analyze all agree- RexMaryBryce@aol.com ments of sale, listings or options. Peter Goold, Vice-Chair A Certified General Appraiser for accepting a fee and failing to render appraisal services. email@example.com A Certified Residential Appraiser for conveying a misleading appraisal report and failure to cooperate with an investigation. Robert Galliher, MAI, SRA Three Certified General Appraisers for failure to properly gather factual information, ren- REGAPPR@aol.com dering appraisal services in a careless and negligent manner, and failure to set forth appraisal reports in a clear and understandable form. Wilson Kimball firstname.lastname@example.org Discipline - Fines Dominick Pompeo, SRPA, SRA, CSA 2003-0439 On March 22, 2004 a Licensed Residential Appraiser was fined a total of DPompeo122@aol.com & $1,000 in two complaints for the failure to adequately describe the condition 2003-0834 of two subject properties; acknowledge prior reports with the same date; prop- Jack Rose, IFAS, CSA erly support the income approach and indicate appropriate title and license email@example.com number on the appraisal reports. 2003-1150 On June 30, 2004 a Certified General Appraiser was fined $500 as part of a Matthew Smith, MAI, SRA Consent Order for rendering appraisal services in a careless and negligent firstname.lastname@example.org manner. 2003-2431 On March 25, 2004 a Certified General Appraiser was fined $750 for failure to: properly analyze sales data on an original report; use a correct effective date for a second report of the same property; and, provide a correct descrip- tion of improvements in the second report. Appraiser Examination Schedule Appraisal Board to Meet Appraiser walk-in examinations will be held in Albany, Buffalo, Franklin Square, The New York State Board of Real Hauppauge, New York City and Syracuse at 9:30 a.m on the following remaining Estate Appraisal has scheduled its next dates in 2004: meeting for 10:30 am on Friday, De- November 8 * December 20 cember 10, 2004 at the Department of State, 123 William Street, 19th Floor An appraiser applicant may only take the examination for the classification indi- Conference Room, New York City, NY. cated on the admission notice. If an applicant has subsequently completed additional education for a different category, he or she may contact the Albany phone center at If you plan on attending this meet- (518) 474-4429 for information on obtaining an updated admission notice. Appraiser ing, please check the Department of Assistants should note that federal Appraiser Qualifications Board (AQB) guide- State Website (www.dos.state.ny.us) lines specify that qualifying examinations results are only valid for 24 months prior to the meeting date to confirm the from the date the test was taken. If an applicant has not applied for a license/certi- meeting. fication within this time period, a new test will be required. The Unseen Cost of Careless Appraisal Practices In our last edition of the Appraisal Newsletter, we addressed the for their expertise and familiarity with market conditions in significant increase in Uniform Standards of Professional Appraisal certain areas of the state. Practice (USPAP) violations and appraisal fraud that have occurred The cost of appraisal investigations has increased so significantly over the last several years, and the steps being taken by the Depart- that a number of states have instituted a fine/fee policy into their ment and the Appraisal Board to alleviate this situation. Most ap- disciplinary proceedings. Individuals who are found in violation praisers understand the harmful consequences that incompetent of USPAP or state license law are assessed a fine amount to cover appraisal practice can inflict on individuals and communities. How- the cost of the investigation, in addition to any other imposed pen- ever, an often overlooked detail is the cost to government (and alties. Careless appraisal practices can have the same impact as ultimately the taxpayer) of investigating appraisal complaints. those of a more serious or intentional nature because the Depart- The Department of State has administrative jurisdiction over ment must follow specific guidelines and allocate financial resources more than twenty licenses and registrations. Real Estate Appraisal in a similar manner for most complaints. Consequently, the Ap- complaints are among the most costly to administer both finan- praisal Board and the Department are committed to the enforce- cially and in terms of hours required per investigation. This is due ment of USPAP. To avoid penalties, appraisers should be mindful to various factors: of the following points: • federal oversight of appraiser licensing in all states; • observe the Ethics Rule and the Competency Rule. Do not accept assignments in unfamiliar locations or with a specific • large amount of documentation that must be examined such as appraisal reports, letters, statements from parties to the com- type of property that you do not have the requisite experi- ence. Seek the guidance of other knowledgeable appraisers plaint and data used to develop the appraisal; when necessary; • complexity of the appraisal process and required adherence • do not “bend the rules” to please a client; to applicable USPAP Standards and New York State License Law (Article 6e, NYS Executive Law); • when required, spend the necessary time to perform a com- petent property inspection. Be sure of all sources and the ac- • federal enforcement guidelines which advise a full Standard curacy of your information; and 3 Review in many types of complaints; and • perform the appropriate level of due diligence as required in • use of compensated regional appraiser advisors who review USPAP. many value disputes for the Department. Advisors are chosen Appraisal Standards Board to Phase Out the Departure Rule From it’s inception in the early 1990’s, clarified the minimum development re- Work in January, 2003. The feedback re- the Departure Rule has been a source of quirements in an appraisal assignment, they ceived from interested parties made clear confusion and controversy for many ap- did not eliminate the use of the terms “com- the importance of a proposed Scope of praisers. It was originally assimilated into plete appraisal” and “limited appraisal”. Work Rule. Basically this proposal would Uniform Standards of Professional Ap- The Appraisal Standards Board (ASB) replace the Departure Rule with a set of praisal Practice (USPAP) to meet the in- pointed out that these terms often imply minimum core standards that must be fol- creasing demand for appraisal services improper meaning to those not familiar with lowed in every appraisal assignment. The other than the typical appraisal valuation the definitions in USPAP. The word “com- ASB states that while this conceptual shift product. Departure was viewed as the best plete” is mistakenly viewed as a reference away from departure will result in numer- mechanism to provide the necessary flex- to the entire scope of work and not a dis- ous changes to USPAP, the fundamental ibility while at the same time preserving closure related only to the degree of com- requirements (of USPAP) will not change. professional appraisal standards. Basically pliance with non-binding specific require- The scope of work will continue to be based it allows for the exclusion of specific ments. The term “Limited Appraisal” can on what is required to produce a credible non-binding requirements (specific require- also imply an inferior appraisal product to appraisal assignment, however there will be ments) in an appraisal assignment, under many users of appraisal services. no label (“complete” or “limited”) placed certain circumstances. Subsequent changes Consequently, appraisers, regulators and on the provided service. No significant clarified that departure was not permitted users of appraiser services expressed the changes to USPAP from this project are from any Standards Rule which was neces- need for clarification on this issue. The ASB expected until 2006 or later. Accordingly, sary to produce creditable results in a spe- responded by issuing a Concept Paper on please note that the Departure Rule is in cific assignment. While these revisions the Role of Departure and the Scope of effect until officially replaced. Continuing Education Update Quick Note about Renewing on Time Each appraiser should be aware of the importance of renewing their As reported in the previous Newsletter, as of January 1, 2004, all license/certification as soon as possible after receiving the renewal appraisers are required to complete a seven-hour National USPAP form. The Division of Licensing Services mails each appraiser their Update Course in order to renew their license. To facilitate the renewal application approximately three months prior to the expi- transition into this new continuing education requirement, the Ap- ration date of the license/certification. Once your license/certifica- praiser Qualifications Board also allowed appraisers to complete tion has been renewed with this office, your renewal information is the 15-hour National USPAP Course in lieu of the seven-hour electronically transmitted to the National Registry for inclusion on course. The completion of the 15-hour course to satisfy the re- their database of Licensed/Certified Appraisers approved to per- quirement is only admissible for the calendar years 2003 and 2004. form Federal-Related Transactions. The later you renew your li- As of 2005, all appraisers must complete the seven-hour National cense the longer it will take for your name to appear on this regis- USPAP Update Course to fulfill this requirement. try, thus delaying your authority to perform these transactions. Number of Appraiser Assistants Continues to Rise In the early 1990’s, the Board of Real sification. With the increase in assistants, • personally inspect each appraised Estate Appraisal and the Department of the Department has also experienced a cor- property with the Appraiser Assistant State recognized the need to establish an responding rise in the number of complaints until he or she is competent to do Appraiser Assistant (trainee) category in against them and inquiries concerning their alone. New York. Since federal oversight of the responsibilities. Most of the problems can Appraiser Assistants obligations. appraisal profession (in federally covered be traced to situations where Appraiser • must work only under the supervision transactions) was now law, an entry level Assistants are not properly supervised. category was needed to provide field train- Accordingly, the Department of State will of a Licensed or Certified Appraiser on each appraisal assignment. ing for candidates, document their experi- monitor the activities of assistants and su- ence and assist appraisers with their assign- pervisory appraisers to ensure compliance • maintain an appraisal log with re- ments. Initially, the Department registered with the following: quired information for each appraisal about 300 individuals. The numbers began and a separate log for each supervis- Supervisory appraisers responsibilities. to increase as appraisal professionals ac- ing appraiser. knowledged the functionality of the new • train the Appraiser Assistant in the correct development and reporting of • adhere to USPAP in all areas of re- classification and began to use Assistants sponsibility. an appraisal in accordance with on a more regular basis. Consequently, on • disclose Appraiser Assistant status USPAP. January 1, 2000, an amendment to Article when required and in a manner that is 6e of the Executive Law became effective • accept responsibility for the appraisal not misleading. which formally recognized the Appraiser report by signing and certifying the Assistant category. report. As noted in the last newsletter, some • review the Appraiser Assistants work qualifying criteria for Appraiser Assistants Presently, there are about 3,600 Ap- (trainees) will be changing on January 1, praiser Assistants in New York. This has and reports. 2008 or earlier. become the largest appraiser license clas- ASB Advisory on the Clarification of the Client in a Federally Related Wealth of Appraiser Information Transaction Available at DOS Website An article in the last edition of the Appraisal Newsletter focused Up to the late 1980’s, appraisers were for the most part, unregu- on Appraisal Standards Board (ASB) Advisory Opinions 26 and lated, and quietly carried on their trade. With establishment of the 27 which concerns the transferring of an appraisal report to an- Federal Institutions Reform, Recovery, Enforcement Act of 1989 other party and appraising the same property for a new client. No (FIRREA), came licensing, formal recognition of Uniform Stan- less important for appraisers is Advisory Opinion 25 which con- dards of Professional Appraisal Practice (USPAP), and a myriad cerns the Clarification of the Client in a Federally Related Trans- of federal and state regulations that required the appraiser’s atten- action. The basis for this interpretation are federal appraisal rules tion. An appraiser’s time is important. So how can he or she get adopted in 1990 to comply with Title XI, which imposes a require- immediate answers to questions on appraisal matters or renew a ment on regulated institutions that “if an appraisal is prepared by a license/certification any time of the day or night? Go to the De- fee appraiser, the appraiser shall be directly engaged by the regu- partment of State website. Here, appraisers will find most of the lated institution or its agent.” In some circumstances, however, a information and forms they need without the inconvenience of call- property owner may directly engage the services of an appraiser ing or visiting a Department of State office. Our interactive website for one intended use, but later want to use the appraisal report in a allows appraisers to carry out the following functions: federally related loan transaction. The ASB advises that in such a • Renew a license or certification (mastercard or visa accepted); situation, the appraiser must make proper disclosure to the prop- erty owner that the lender or its agent is required to directly engage • Search the list of active license/certification holders by ID the appraiser. The appraiser must also divulge to the client that it is number or name; unethical to later change or readdress the report to indicate the • Download initial and renewal applications; lender as the client when the appraisal report was prepared for • Read a column on frequently asked questions and obtain the another party (see Advisory Opinions 26 and 27). If a client still latest information on federal AQB and ASB policy changes; wants to proceed with the appraisal after the appraiser has made • Obtain a list of Appraisal Board Members; the proper disclosures, the appraiser can accept the assignment. The complete text of Advisory Opinion 25 and related references • Find examination information and schedules; can be found in USPAP 2004. All appraisers should familiarize • Read or download Appraiser License Law (Article 6e), reci- themselves with this information to ensure compliance with these procity list, Appraisal Board meeting summaries, and current guidelines. edition of the appraisal newsletter; Licensed and Certified • Obtain appraisal instructor and approved course forms; and, • Download complaint forms. Real Estate Appraisers There is also substantial information available for all other De- Certified General Real Estate Appraiser 1,529 partment of State licenses (such as real estate salespersons and bro- Certified Residential Real Estate Appraiser 1,957 kers ) and divisions. The link to our Division of Corporations may Licensed Real Estate Appraiser 464 prove helpful to many of our licensees. Our web address is Real Estate Appraiser Assistant 3,556 www.dos.state.ny.us Total 7,507 Give it a try! Department of State PRESORTED STANDARD Division of Licensing Services U S POSTAGE 84 Holland Avenue PAID Albany, NY 12208 PERMIT NO. 366 ALBANY, NY Frequently Asked Questions The Department of State receives com- • summaries of any oral reports or tes- is sufficient to meet the requirement. How- munications from appraisers and other in- timony, or a transcript of testimony, ever, this is a minimum requirement and does terested parties concerning the Uniform including the appraiser’s signed and not prohibit full disclosure of the amount of Standards of Professional Appraisal Practice dates certification; and the fee. (USPAP), licensing regulations and other • all other data, information, and docu- Question 3: matters. We will provide responses to those mentation necessary to support the I am a licensed trainee with approximately inquires of greatest interest. appraiser’s opinions and conclusions six months of experience. My supervisory Note: The following information is pro- and to show compliance with this appraiser recently deemed me competent to vided by the Appraisal Standards Board Rule and all other applicable Stan- perform inspections on my own; however, (ASB). If you have additional questions dards, or references to the location(s) many of our clients require the supervisory about USPAP or other related topics, please of such other documentation. appraiser to physically inspect the property go to the Appraisal Foundation Website at As long as an electronic workfile con- as well. If I do the inspection by myself but www.appraisalfoundation.org. tained these items, it would be sufficient. take numerous representative photos of the Question 1: An appraiser must also be mindful of the interior of the subject property, may my su- Recently I have considered maintaining only requirement to have access to the workfile pervisory appraiser check the box indicat- electronic workfiles (i.e. saving only elec- for the applicable required time period. The ing that he “Did Inspect” the interior of the tronic versions of my reports and support- appraiser must ensure that the proper soft- property? ing data, and scanning any paper documents ware is maintained to allow access to the Response: used so that copies may be stored on elec- electronic files. No. A physical inspection of the interior of tronic media). Is this prohibited by USPAP? Question 2: the property is not the same a s a physical Response: The Management section of the ETHICS inspection of photographs of the interior of No. There is nothing in USPAP that would RULE requires an appraiser to disclose, the property. It would be misleading for an prohibit an appraiser from maintaining only ...fees, commissions, or things of value... paid appraiser to indicate that a physical inspec- electronic versions of workfiles. in connection with the procurement of an tion was performed when in fact the ap- The Record Keeping section of the ETH- assignment. If a referral fee was paid in con- praiser viewed photographs of the property. ICS RULE states, in part: junction with an assignment, must the amount An appraiser who only inspects photographs The workfile must include: of the fee be disclosed, or is it sufficient to of a property, but signs a certification indi- • the name of the client and the iden- simply disclose that a fee was paid? cating that he or she physically inspected the tity, by name or type, of any other in- Response: subject property, is in violation of USPAP’s tended users; Disclosing the fact that a payment was made prohibition against the communication of a • true copies of any written reports, in the appraisal certification and any trans- misleading or fraudulent report (Conduct documented on any type of media; mittal letter where the conclusions are stated section of the ETHICS RULE).