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