Saturday , 15 December 2018

Appraisal Inspections (Pitfalls & Perils)

Say what? Well, let’s take a look at what an inspection of a property, for appraisal purposes, is all about.

First, what does our standards of practice, Uniform Standards of Professional Appraisal Practice (USPAP) say about the issue? That is described in Standards Rule 1-2 (e) “An appraiser may use any combination of a property inspection and documents to identify the relevant characteristics of the subject property.” This is also addressed in Frequently Asked Question 173 as well as in Advisory Opinion 2, Inspection of Subject Property, “The extent of the inspection process is an aspect of the scope of work, and may vary based on assignment conditions and the intended use of the assignment results.”

In actuality, USPAP does not require a property inspection at all. It is client requirements as outlined in the scope of work, based on assignment conditions that dictate the extent of a property inspection. As such, the intent is to identify the property’s relevant characteristics so that an appraisal can be completed in accordance with a client’s requirements.

Client requirements, and a scope of work based on those requirements, is crucial to the appraisal process. But, be careful. The Scope of Work Rule cautions us, among other things that “An appraiser must not allow the intended use of an assignment or a client’s objectives to cause the assignment results to be biased.” In my opinion, biased results may be the result of an appraiser performing an inspection task for which they are not qualified to do. Too often appraisers are asked to do things that place their opinions of such matters in question, and themselves in potentially a liability trap.

As an example, most appraisers are not qualified as home inspectors, either by lack of knowledge or, in some states, required licensure as such. Simple tasks, such as turning on items such as utilities, heating and cooling systems, water supply, appliances, electrical monitoring systems, and operating such, may place an appraiser in a position of liability.

One Example

A few years ago a real estate agent was inspecting a property and decided to see if the fireplace worked. She lit a match and set some wood on fire in the fireplace. After showing the property she came back to check the fireplace and found that a large ember had fallen on the carpet in front of the fireplace. Unable to “fix” the problem, she tearfully told a relative about the matter, and asked for his help. Instead of owning up to the mistake and paying for the carpet to be repaired, the relative decided to help her out, and burned down the house. Needless to say, the agent lost her license. The relative went to prison.

Just Don’t Do It

Don’t do anything you are not qualified to do or you feel carries too much liability. This may include turning on utilities, running water, operating any system such as heating and air conditioning. It is not the appraiser job to “fix” anything. It is usually beyond the appraiser’s expertise to have sufficient knowledge about such things as appliances to know what condition they are in. And, many may be personal property. In any event, an appraiser’s role should be one of observation, and not an intrusive inspection or structural inspection. Report what you see, hear, maybe smell, and take photos of everything. Going beyond what you are qualified to do is simply putting yourself in harms way. Do what you are qualified to do, no more, no less.

Suggested Statement

“Where applicable, based on report for or type utilized, the appraiser has made a visual inspection of what is readily apparent. The appraiser has not moved, relocated or otherwise performed an intrusive or invasive inspection. The appraiser’s ‘inspection’ is not to be considered to be the same as a home inspection by a home inspection expert, contractor, or tradesman. The appraiser has not tested any system such as electrical, plumbing, heating/air conditioning. If requested, or if appropriate, the appraiser may have turned on lighting for photo taking, or flushed toilets to observe function. The appraiser will only report what was observed.”

“The appraiser is not an expert in environmental hazards or conditions and is not qualified to comment on such matters. The appraiser has only general knowledge in matters relating to soil, structural, or other engineering matters and cannot comment on such matters.”

FHA & Other Client Requirements

I realize that FHA requires that many things noted in this article must be inspected, such as attics, crawl spaces, turning on and off HVAC, plumbing (running water), flushing commodes, operating garage door openers. My suggestion would be to ask an agent (listing or selling agent) or property owner to do those things while you observe. Otherwise, if it breaks, you may be responsible to have it fixed. And, seek guidance from your Insurance E&O provider. Ask about additional liability insurance to cover these things.

Qualifications (Example)

“The appraiser is a State Certified Residential Real Estate Appraiser.”

“The appraiser has been qualified by the State of Virginia to teach Basic Real Estate Law, Finance, and Brokerage to broker candidates. The appraiser is not an attorney. The appraiser holds an Associate Degree in Real Estate, and a Broker’s License (State of Virginia). Appraiser is not qualified to comment on matters that are legal in nature or content.”

Have content of your own that you would like to submit? Email comments@appraisalbuzz.com.

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About Don Clark

Don Clark
Charles (Don) Clark has 41 years experience in the real estate profession as a salesperson, broker, and real estate appraiser. He is a State Certified Residential Real Estate Appraiser in Virginia and North Carolina, and is designated as a Green Valuation Specialist. He specializes in real estate appraisal, education, and consulting. Don also does peer review and assistance in assisting appraisers in answering complaints of state boards and other regulatory agencies. He is also licensed or certified to teach appraisal pre-licensure courses in Virginia and North Carolina. He holds a degree in real estate from St. Leo College, St. Leo, Florida, is an AQB Certified USPAP Instructor and has been active in the profession since 1972.

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